Tech cold war is a fact. China tells government offices to remove all foreign computer equipment

[remake it + 288]

3 minutes ago, Marcin said:

I do understand @remake it argumentation, again he is partially right, but you guys more than him.

Is the USA or China more nimble in terms of markets and is the USA or China going to expand proportionately more into emerging markets are highly relevant questions as the old paradigms have fallen away.

[Marcin + 519]

2 minutes ago, remake it said:

People were saying that 20 years ago and lo and behold those ghost cities of the past are largely occupied nowadays having contributed to China's massive transformation from a rural to a predominantly urban economy.

Here @remake it nailed this. 35% of Chinese GDP is investment, pretty trailing Japan, South Korea during their exponential rise.

Certainly with vast investment program cases of malinvestment, but insignificant in total picture. No ghost cities , build and they will come. And they did indeed.

[Dan Warnick + 6,100]

18 minutes ago, remake it said:

People were saying that 20 years ago and lo and behold those ghost cities of the past are largely occupied nowadays having contributed to China's massive transformation from a rural to a predominantly urban economy.

https://www.youtube.com/watch?v=qqQ3OKm2nJ8

https://www.youtube.com/watch?v=Ie6zd3Rwu4c

https://economictimes.indiatimes.com/blogs/et-commentary/dont-get-haunted-by-ghost-cities/

[Rasmus Jorgensen + 1,169]

4 hours ago, Jan van Eck said:

China's immediate future is to turn into a society of old people, probably a lot of very old people, who will contribute nothing to the economy but be very expensive.

so basically it's just a war of attrition... 

[remake it + 288]

3 minutes ago, Rasmus Jorgensen said:

so basically it's just a war of attrition... 

Yes funny that especially given that China is a long way behind Japan on that front and the USA is only a decade behind China and China has a culture where it has not been unusual for 3 to 4 generations to live in the same household which cannot be said of the USA.

[Marcin + 519]

@Jan van Eck you are right about gender imbalance in China. But studies do not confirm that this causes more agressive behaviour, such men are typically depressed, with low self-esteem. Studies also do not show that they are more prone for civil unrest. But this aspect nevetheless is not problematic as Chinese (like US) society is under constant watch in real time on individual basis. 

Comrade we know before you that your mind is prone to deviations of anti-national nature. For your own good you are relocated to vocational training facility for re-education by our specialized precrime unit. Chinese state in its extraordinary benevolence provides this services free of charge.

Edited December 23, 2019 by Marcin
Typo

[Jan van Eck + 7,558]

On 12/23/2019 at 4:51 AM, Rasmus Jorgensen said:

so basically it's just a war of attrition... 

Not really.  What you are overlooking is that it is not a "war" at all.  The USA is simply going to disengage with China and the two can go heir own way, and I can flat-out guarantee you that the people in the USA are not even going to think further of or about China.  The attitude already is:  "So, who cares?"  And the answer to that is: basically, nobody. 

The whole "go to China and get your stuff made cheap" is an idea that has come and gone.  The big shift comes with Donald Trump, and while he pontificates (a lot!) about "trade war," in fact it is not a trade war at all, although the Chinese are trying to make it into one.  It is a de-coupling, with the Americans (and Canadians) simply sourcing in other places.  Or doing their sourcing "at home," which is what is happening already in the USA.  And all that is the result of the energies of one man, Mr. Trump.  Like him or loathe him, you have to acknowledge that he is making a huge, tectonic shift in the China trade pattern. 

Now the Chinese reaction is to try to strike back by such acts as stopping imports of US and Canadian products, and (of course) by seizing and imprisoning two Canadians, businessmen who were stupid enough to be inside China on purchasing expeditions when China decided to go grab someone for leverage against the arrest of Mrs. Meng, she of Hauwei fame.  But that just backfires. I put no success on any of that.  

To demonstrate just how involved China trade patterns have become, at least in Canada, I invite you to ponder the case of Goodfellow Lumber, a large (probably the largest) Quebec wood processor.  Those guys buy raw logs from Quebec and even next-door Vermont, then mill the logs into planks and sections, for sale into the furniture and construction trades. One item they got into was hardwood flooring.  So oak and maple logs are milled into final shape as tongue-and-groove flooring, then put into containers and shipped from Montreal all the way to some finishing plant in China, there taken out of the containers, and finished by the addition of stain to color, then the polyurethane coatings to make them resistant to wear.  There might be as many as  12 coatings of poly on each plank.  The poly coating is dried between coats, and then the entire finished product is bundled into large boxes of about 78 sq. ft. of product each, then the boxes are put back into sea containers and shipped back to Montreal, then trucked to the plant south of the city.  From there, the finished product is shipped by truck out to the retail outlets, such as "Lumber Liquidators," and "Home Depot," and then sold to consumers. 

Now, this is poor management, of course; lazy management, done to avoid having to do the work on-site in Quebec or have some local entrepreneur do it.  The Chinese were able to snag that work by offering it at lower prices.  So "price" becomes the determinant of retaining that business.  But if the USA now duties that flooring at 25% or more because it is effectively a product of China, do you seriously think the price advantage will remain?  Of course not.  So then all that sea-trade shuffling of product in and out of China to get some re-finishing work done is going to disappear.  It will not go to Vietnam; it will come back to Canada.  And if there is a duty on it to get into the US market, then the finishing and packaging will go to Vermont or the USA.  That much is inevitable. 

Now, what does that Chinese finishing plant do to make up for the lost work?  Well, there is not much they can do, except perhaps push for the same work for European customers.  But Europe has little hardwood trees, and what they have, those logs are sold for gold.  Europe imports its woods, softwood from Finland  (and probably Sweden), and hardwoods are not to be found, some stand left in places such as France and the Carpathian Mountains.  Not enough to satisfy the demand for hardwood flooring, unless you start bringing in mahogany from the Congo.  But African hardwood is difficult to source, those countries unreliable suppliers. So the logical supplier becomes - the USA and Canada. 

And this is how markets shift.  You will see this disengagement from China as a source, both for products built "from scratch," such as bicycle gears, and in intermediate finishing, as you see in the flooring business.  As those Chinese plants lose that work, you will have loss of employment in that segment of society, which will be a destabilizing factor internally, and is the big reason you see these Bots  (such as "remake it") showing up on Western internet forums, and even their primary human handlers (such as marcin) who had this carefully constructed cover story of being an economist in Poland.  But no economist in Poland is going to be endorsing the prattle of some robot in China so consistently, that is out of the question, so Marcin has blown his cover.  One more human handler of Chinese propaganda, paid for by their military.  

Why are the Chinese so upset by this de-coupling?  Because so much of their commercial structure is premised on manufacture for the Western markets.  They can talk big about "emerging markets," places such as Africa and Kazakhstan and Iran, but those places do not have the rich consumers of the USA, Canada, and Western Europe.  So the volumes are not there.  And China is, above all, a place of volume. 

So, what Can China do for an encore?  the business model is based on selling their surpluses, including items such as steel sheet, plate, and product, and aluminum in ingot, plate and product, and lots of finished goods to the WalMarts of the world, to absorb their surplus capacity - of which they have lots.  Now the China supporters all have this idea that there is or will be this rich Chinese internal market.  that is not so.  First, lots of Chines are poor.  Second, the place is in a population implosion.  Now the govt has to divert resources, and lots of them, to support old people, and unless you do a Stalin and starve them to death to dispose of that surplus population, you have to have both the bodies of trained workers and the women to reproduce them or the whole thing collapses.  And you need free access to foreign markets to provide the outlet for that production.  And that is going away, except for the European marketplace  (which is large, but all of Europe taken together still does not equal the US market alone, which is some 25% of the world marketplace).

So the US can simply ignore China.  And they will.  China wants to go spend their coin on building artificial islands in the South China Sea?  To what end?  To capture offshore oil drilling?  To what end?  There will be no market for that oil, because without the mercantilist market for goods you don't need a source of oil.  OK, a little oil, but you can buy that a lot cheaper from Venezuela.  Or the USA, for that matter. 

China simply cannot hold it together.  The idea that the US is going to go back to its old ways if the Chinese stop buying canola and soybeans and lobsters is laughable.  This is the USA, home to nimble entrepreneurs; new uses for those products will be found, or the land and sea will shift to other production of other grains.  Don't kid yourself; in the USA, nothing is static.  The place is far too dynamic for that. 

So, once again, the US simply disengaging from China will lead to the collapse of China.  And that is why the Bots are so fierce.  Cheers.

 

Edited December 25, 2019 by Jan van Eck
typing error

[Jan van Eck + 7,558]

"Yes funny that especially given that China is a long way behind Japan on that front and the USA is only a decade behind China and China has a culture where it has not been unusual for 3 to 4 generations to live in the same household which cannot be said of the USA."

Take a good look at the above quote, folks, this is what the last gasp of propaganda bullshit from a bot handler looks like,  These guys cannot give up in their effort to shape Western public opinion, so they just keep pouring it on.  But it is just Chinese propaganda, and cannot derail what Trump has set in motion.  

[Tom Kirkman + 8,860]

50 minutes ago, Jan van Eck said:

The big shift comes with Donald Trump, and while he pontificates (a lot!) about "trade war," in fact it is not a trade war at all, although the Chinese are trying to make it into one.  It is a de-coupling, with the Americans (and Canadians) simply sourcing in other places.

My endless rants have apparently made inroads : )

[Papillon + 485]

For a nation that doesn't care about China, it strikes me as somewhat odd that every other thread is about China? Americans do not care but are obsessed with it here anyway? It is also quite telling that markets seem to move on every tweet about the trade war? To say Americans do not care is simply false in my opinion gentlemen. Firstly, I am sure the farming states care? And most users here? And now anyone in the technology field? 

Also I do not quite understand why the title is even news. China removes foreigh computer equipment but, before hand, the USA are doing all they can to discredit Huawei, to a point they are trying to force this opinion on other nations? But the USA doesn't care about China? A lot of people here seem very opinionated on every thread connected to China, considering they do not care or think about it. How laughable.

Respectfully and Happy Christmas,

Papillon. 

Edited December 23, 2019 by Papillon

[remake it + 288]

4 hours ago, Jan van Eck said:

So, once again, the US simply disengaging from China will lead to the collapse of China.  And that is why the Bots are so fierce.  Cheers.

You analysis is so inept it quite beggars belief.

[Rasmus Jorgensen + 1,169]

4 hours ago, Jan van Eck said:

The USA is simply going to disengage with China and the two can go heir own way, and I can flat-out guarantee you that the people in the USA are not even going to think further of or about China.  The attitude already is:  "So, who cares?"  And the answer to that is: basically, nobody. 

It might be that nobody; that is not for me to say. However, I believe that there is a lot of truth to @Marcins analysis, which means at some point we all have to care. 

If your stance is to focus on improving the quality of life for the average citizen then I agree it matters not what China does. Atleast not in the near to medium term. 

[Papillon + 485]

5 hours ago, Jan van Eck said:

Why are the Chinese so upset by this de-coupling?  Because so much of their commercial structure is premised on manufacture for the Western markets.  They can talk big about "emerging markets," places such as Africa and Kazakhstan and Iran, but those places do not have the rich consumers of the USA, Canada, and Western Europe.  So the volumes are not there.  And China is, above all, a place of volume. 

I do not quite understand this section sir. Who is it that has pulled out of the latest ''deal'', at the last moment, every step of the way, for nearly two years? It is China is it not? This does not seem to me to be a nation that is upset or even eager to make deals, considering their apparent desperation as some here suggest? It is Mr Trump who feels the need to tweet or state ''China want to badly make a deal'' on an almost daily basis is it not, and it seems the public and markets fall for it every time? Does any event in the last two years suggest China badly wants to make a deal? It is the USA and Mr Trump who have a time limit on their hands with regard to an election. 

Also I do not quite understand the suggestion that Western Europe will ''decouple'' from China just because the USA apparently wishes to? This suggests to me quite a bizarre arrogance that everything the USA does is correct and the world should follow suit sir? Mr Trump and the USA have not even swayed opinion of one of the biggest Chinese companies, despite their efforts, so why some users believe entire nations will decouple from China at all, just because they have, is a little odd to me. 

Edited December 23, 2019 by Papillon

[Tomasz + 1,608]

The difference is that the US in recent years impose sanctions on half of the world and China instead propose beneficial cooperation.

The attitude of the United States is characteristic of a hegemon who feels he is losing his dominant position to China and is becoming more and more nervous.

In 50 years, at all universities, they will teach that the Kissinger agreement with China and  as a result, the uncontrolled growth of China was the largest geopolitical error of the 20th century.

A new dominant power is emerging in Eurasia, and America doesn't have enough tools to counteract this.

The world is again divided into II geopolitical camps with the difference that this time the members of the United States camp are beginning to wonder if they have bet on the right hegemon.

In general, the time of US hegemony is slowly becoming a thing of the past.

The world is becoming multipolar again and I personally enjoy it.

The next step is to undermine the dominance of the dollar as a reserve currency, and the actions of many central banks just show it.

It is time that the US earned its own living and did not feed on the global economy.

 

It will not be fast and it will take several dozen years.

But the fact is that China's position is growing and America is spending hundreds billions of dollars on the over-extended arms sector and on wars somewhere at the end of the world while China is betting on its own economy.

Edited December 23, 2019 by Tomasz

[remake it + 288]

5 minutes ago, Tomasz said:

It is time that the US earned its own living and did not feed on the global economy.

The machine and might of America was born out of WWII where your words most certainly ring true until the attack on Pearl Harbor and it is interesting to observe that once hegemony is attained it can be sustained by feeding off others but not in feeding others.

[Jan van Eck + 7,558]

9 hours ago, Papillon said:

I do not quite understand this section sir. Who is it that has pulled out of the latest ''deal'', at the last moment, every step of the way, for nearly two years? It is China is it not?

 Yes, of course.  But remember that China both wants and needs a "deal" in which most or all of the old relationships are re-established.  China needs to run a mercantilist trade surplus with the USA, that is their entire economic model.  Trump wants to go to an even trade model, as measured by dollar value.  So you have this little dance where the sides say they are getting together, but when the USA demands full access to Chinese markets and IP protections, then China breaks away.  they figure that they will outlast Trump and Trump will fold in the 2020 election, or not run.  Then China can deal with the (presumed) Democrat who will be much more malleable. 

9 hours ago, Papillon said:

Also I do not quite understand the suggestion that Western Europe will ''decouple'' from China just because the USA apparently wishes to?

Europe is coming to a crossroads.  Either they do trade with the USA or they do trade with China.  If Europe elects to get in tight with China then it will be unable to export to the USA.  First, too many European products will have Chinese components, so they will be effectively barred;  second, the USA is likely to start imposing tariffs on European goods such as German autos, and that would be a disaster.  Imagine BMW with a 25% tariff:  now your $90,000 BMW 7-series becomes a $120,000 BMW.   And BMW cannot "eat" that tariff, so it gets shoveled onto the retail customer.  That will sting.  The retail customer is going to go buy something else.  Even the very rich retain some price sensitivity.

For example, the State of Rhode Island at one point, being broke, attempted to levy an excise tax on yachts built there with a value of over $50,000  (could be wrong on the threshold number;  just from a hazy memory)..  OK, so now the buyers of those expensive yachts stopped buying; the new tax was an extra 10%.   What the govt of Rhode Island forgot was that lots and lots of very ordinary people working in those boat building yards to fabricate those expensive yachts, and now they were out of work.  So, the special excise tax came off. Why should a rich man looking at a $700,000 yacht go spend an extra $70,000 in a special tax, just to finance the deficits of the State?  he is not going to do that.  He will buy a yacht from somewhere else, or buy a used yacht, lots of those around.  

Can Europe go buy their plastic garbage bags from China, without irritating the USA?  Of course they can.  Nobody cares about that low-end stuff.  But auto components?  No, you have to buy those in a developed country, not China, or you will incur the tax.  So Europe can forget the ideas of sourcing parts inside China.  And they will.  That work will flow back to Europe, and to Mexico, Canada, Japan, and the USA.  

And that is how Europe de-couples from China.  I see it as inevitable. 

[remake it + 288]

1 hour ago, Jan van Eck said:

China needs to run a mercantilist trade surplus with the USA, that is their entire economic model.  Trump wants to go to an even trade model, as measured by dollar value. 

China has this model with most trading nations accounting for the other 80% of their trade while the idea that the USA has any chance of trade parity is currently not rational.

1 hour ago, Jan van Eck said:

And that is how Europe de-couples from China.  I see it as inevitable. 

Again that level of analysis is so inept it confirms earlier remarks.

[frankfurter + 562]

Wow, real experts here.  Real insider knowledge.  Who would have thought China's economy depends entirely upon the USA?  Well, let's see, when last I read... China's GDP is about $18 trillion.  China's exports to the USA is about $0.6 trillion and imports from USA about $0.2 tn, so balance is $0.4tn?  hmm, 0.4 is about 2.3% of 18 tn. Somehow 2.3% is gonna collapse China, assuming total parity.

Looking from the other side... the USA GDP is about $22 tn, and Trump's "trade war success" will carve back about $0.2tn from China (assuming things go Trump's way from here).   Wow oh wow. Trump's deal of the century means <1% of GDP (assuming SOME of this trickles down to the citizenry). Yup, a huge victory.

The claims of decoupling are even more absurd. 

[Marcin + 519]

On 12/23/2019 at 6:42 AM, Jan van Eck said:

SO China is facing its demographic crossroads.  You see China as this burgeoning powerful society; that is a mistake.  Some 25% at least of Chinese GDP is building infrastructure that is not even needed, like entire cities that remain empty because nobody can buy in.  What are you going to do - move the peasants in and urbanize them, with no jobs and no future, and no wives?  You can't do that.  Far too risky.  So China will have to resort to repression, a new surveillance State, and that will result in poverty.  China may stay in one piece, but only as a poor, agricultural society.  The big industrial push is going to fail, because their population is collapsing. 

China has tried to combat all this by their mercantilist trade policies.  Both the West in the USA, and in Europe, have been mild in their reactions, until Trump came along.  He put a stop to it, and the slide into negative fecundity becomes irreversible.  Say good-bye to China. And also to Russia.   And tht is why nobody much cares in the USA;  it is headed for oblivion anyway. 

@Jan van Eck @Dan Warnick

1. sex ratio imbalance I addressed before: important societal impact, too much men (60 million) with depression and low self-esteem because no wife&children but not important impact on regime stability and overall economic activity.

2. Importance of bilateral trade relations. I already addressed this issue 50 times, but for you 51: both China&US too large for trade to be that important for economy, domestic market is king. Bilateral trade is decreasing, it has very insignificant impact on any US or Chinese economy, I even created separate thread for this. Look there and find matemathical&statistical proof. For lazy ones summary is: trade war -1.5% impact on trade of US or China and less than -0.3% for GDP of these nations.

Theoretical possible impact of FAST, IMMEDIATE, TOTAL trade decoupling for US -1.0% of GDP for China -2.5% of GDP (starting tomorrow, no trade between countries, zero, null, totally impossible scenario). Both countries still happy living ever after.

Guys I am very happy that you want to get rid of all Chinese and buy only American and Dan mentioned. Great idea. I have to admit that your action would have no impact on US or Chinese economy.

3. Chinese demographics and impact on economy. My opinion is demographics (getting older) has impact on Chinese economy but very insignificant, similar to impact on US economy. I would not write many wise sentences and try to proof my case by numbers, I will be short.  Fertility rates, 2017 per World Bank: US 1.8, China 1.7 Germany 1.6, Japan 1.4, South Korea 1.1. Median age 2019: US 38, China 37, Germany, Japan 47 years.

Example of countries like South Korea and Japan (base case with no immigration) show that bad demographics (and Japan and South Korea have very bad demographics, China would be there in worst case scenario in 20-25 years) is not an impediment to economic growth and achieving the developed country and high income status.

Impact is much more automation in manufacturing and also in services.

China at the moment is still under one time demographic dividend, working population of 57.6% of total, 806 million people.

For US working population is 50.3%of total, 160 million and US is OK. For Japan it is 51.1%, 65 million people and Japan is OK.

For Germany data is 52.7% 42.9 million economically active persons and Germany is OK.

Why China, that will decrease from current 57.6% to Germany, Japan or US active population level in about 20-25 years is not OK ?

Jan, Dan I know guys that you just read what journalists are writing, courtesy of me, you have access to stuff I write, of much better quality, this isyour Christmas present from me. Merry Christmas!

 

 

[Jan van Eck + 7,558]

6 hours ago, frankfurter said:

The claims of decoupling are even more absurd.

Well, you certainly are entitled to your opinions.  And you can go ahead and call me "absurd" if you like, I really don't mind.  But that does not help your argument.

I would gently suggest what you are missing is the factor of marginal adjustment.  If you run a business and you lose a customer who comprises say 1/5 of the volume but also provides 80% of the production profits, how do you continue to operate when that customer is gone?  And you cannot, so your enterprise folds. 

Looking at gross numbers does not tell the whole story.  China makes all of its profits, and then some, selling to Western nations.  It can have vast volumes with other "poor" nations such as selling to say Cambodia, but that volume is never going to generate any profits, simply because those consumers have no money.  So Chinese factories have this two-tier customer relationship: on one tier it is all volume to cover fixed costs, the next tier to cover marginal costs and profits. And this is not at all unusual.  Take for example the Western company Bombardier, manufacturing transit rail cars in Canada in two plants, Thunder Bay (Ontario) and La Pocatiere (Quebec).  These plants need a minimum volume to break even and pay for their fixed, overhead costs.  All the money (profits) are made on the last set of railcars going through one of the plants.  Lose that contract and the entire division is in the red, and has to receive subsidies from the Government to operate. And since they never seem to be able to get up to full volume, it is perpetually in subsidy mode. And why does the Quebec government put up with that?  Because La Pocatiere is out in the rural area, providing good employment for the locals who would otherwise be unemployed.  It pumps money into circulation out in the countryside where otherwise there is no spending, and there would be perpetual poverty.  So the subsidies are seen as a good thing.

Now imagine the situation where the products end up under embargo to a major customer, the USA.  Now what?  You will never get that last bit of capacity at work.  The plant will perpetually need subsidies, or you have to close it.  It does not matter that the plant has a throughput of hundreds of millions of dollars; it cannot make any money, because its best market, the USA, is not there. 

And you have the same situation with China.  they need to sell to the USA, and Europe, or the place does not make the kind of money it needs to stay afloat.  It needs that "last bit" of sales, at good margins, to the Americans, that is where all the profits are.  For the rest, it simply is churning dollars. Now you can view that as "absurd" if you like, that's fine, but I invite you to demonstrate that, without access to the margins that sales to the West provide, how China can absorb its employment and make any money.  It is all made on the margins. 

WalMart alone imports some $60 billion from China.  I invite you to identify even one Chinese supplier that can continue to run its factories if it loses the WalMart account.  I don't think any of them can.  They need that volume to the USA to keep the door open.  Cheers. 

[Jan van Eck + 7,558]

On 12/23/2019 at 5:07 AM, Marcin said:

@Jan van Eck you are right about gender imbalance in China. But studies do not confirm that this causes more agressive behaviour, such men are typically depressed, with low self-esteem.

Involuntary celibacy always causes problems.  In societies were money results in women, and the women select men with money, those without end up celibate.  In the past, and today, those men join the military.  For example, historically some 30% of English men were shut off from sex with women - involuntarily celibate.  They went off to the army, then conquered places like India and America.  And those men were aggressive, with guns.

In Russia today, the involuntary celibates (in small part) go into the Wagner Brigade, then off to fight, and loot, shoot, rape and kill, in the Donbas. Those are quite aggressive men. 

In Canada a (Muslim) immigrant who was shut off from women took a small truck and ran it down a major street on the sidewalk, killing quite a few pedestrians.  Rather an aggressive act. 

And you have tens of millions of these men in China.  Low self-esteem?  Probably.  Passive?  Not likely. 

The entire French Foreign Legion is made up of involuntary celibates, with guns.  Watch out for those guys. That is a rough crowd. 

[remake it + 288]

@Jan van Eck You have confirmed your legendary status here in a manner the very opposite of @Marcin who has also lit the light for others so as to brighten their paths by using real-world data to demonstrate precisely why so many offerings here are unsound 

[Marcin + 519]

14 hours ago, frankfurter said:

The claims of decoupling are even more absurd. 

Yes facts on the ground show that decoupling is not happening, at least YET. But treat people that think otherwise, with mercy and understanding as the narrative in media is all about this really happening at a fast speed.

Changing balance of power causes a lot of insecurities among people. Americans are relatively happy: guarded by Pacific and invincible US Navy.

Think Japan, 25 years ago they constituted 60% of Asian GDP, and then extraordinary facts started to unravel at a fast speed.

19 years ago GDP of Japan was 4 times bigger than  GDP of China

14 years ago GDP of Japan was 2 times bigger than  GDP of China

10 years ago GDP of Japan was equal GDP of China

At present GDP of Japan is 3 times smaller than GDP of China

This I call changing places.

 

 

[remake it + 288]

17 minutes ago, Marcin said:

Think Japan, 25 years ago they constituted 60% of Asian GDP, and then extraordinary facts started to unravel at a fast speed.

With utmost respect @Marcin that is a category mistake in your analysis because decoupling is very different from trends of market emergence which would allow a similar basis of comparison as with India and Japan over the next 25 years.

[Marcin + 519]

8 hours ago, Jan van Eck said:

I would gently suggest what you are missing is the factor of marginal adjustment.  If you run a business and you lose a customer who comprises say 1/5 of the volume but also provides 80% of the production profits, how do you continue to operate when that customer is gone?  And you cannot, so your enterprise folds. 

Looking at gross numbers does not tell the whole story.  China makes all of its profits, and then some, selling to Western nations.  It can have vast volumes with other "poor" nations such as selling to say Cambodia, but that volume is never going to generate any profits, simply because those consumers have no money.  So Chinese factories have this two-tier customer relationship: on one tier it is all volume to cover fixed costs, the next tier to cover marginal costs and profits. And this is not at all unusual.  .

Now imagine the situation where the products end up under embargo to a major customer, the USA.  Now what?  You will never get that last bit of capacity at work.  The plant will perpetually need subsidies, or you have to close it.  It does not matter that the plant has a throughput of hundreds of millions of dollars; it cannot make any money, because its best market, the USA, is not there. 

And you have the same situation with China.  they need to sell to the USA, and Europe, or the place does not make the kind of money it needs to stay afloat.  It needs that "last bit" of sales, at good margins, to the Americans, that is where all the profits are.  For the rest, it simply is churning dollars. Now you can view that as "absurd" if you like, that's fine, but I invite you to demonstrate that, without access to the margins that sales to the West provide, how China can absorb its employment and make any money.  It is all made on the margins. 

WalMart alone imports some $60 billion from China.  I invite you to identify even one Chinese supplier that can continue to run its factories if it loses the WalMart account.  I don't think any of them can.  They need that volume to the USA to keep the door open.  Cheers. 

Jan, I will explain this, if I would sound patronizing or rude in any way please, any reader, tell me, this is my worst defect and I am trying to combat this.

I think that we can say that most of the submarket of Chinese market, its part where Chinese producers and its US clients meet is a perfect competition type of market structure.

(By the way US market for Chinese goods is about 500 billion USD and this is 13.9% of Chinese manufacturing valued at 3.6 trillion USD. Say this year Chinese lost about 7% of this pie that is 1% of manufacturing. Exports to US is not 100% Chinese value added as 1/2 is simple reprocessing - like Foxcomm importing components from East Asia for 150 USD, 30 USD of component from Chinese suppliers and adding 20 USD for assembly, Iphone exported for 200 USD to USD and later sold at a store for 699 USD. Exports are 200 USD , and value added 50 USD at best, 25% of nominal exports. Both Chinese and US producers are in the process of offshoring production to low cost Asian countries: Vietnam, Cambodia, Bangladesh (look at label of your T-shirt,  Made in Bangladesh), India, Pakistan, it started when Trump was still businessman. Jan in short do not be so afraid about well-being of Chinese producers when they loose part of US market in the next 5 years, they will be OK.)

Now back to perfect competition. In perfect competition producers are price takers. Uniform prices exist for the same goods. We assume low power of clients, for a while, this is true for some part of US clients, 1st scenario.

There is some level of production that is needed to cover fixed costs. But in manufacturing it is not about 90% of your current production or even 80% needed to cover your fixed costs. You would be toast if your business is managed in such a bad manner. I had this privilege to analyze cost structure of dozen or so manufacturers in different  sectors so I am not creating my opinion out of thin air. Investment in fixed assets is incremental. Loosing US client base could bankrupt many Chinese businesses focused on US market, and this was happening. But an masse they are OK, 1% of sales they lost this year in US market, 6% they gained in domestic market and re-routing sale to achieve 5% net growth, not much but sufficient. ABOUT PROFITS. Loss of net profit related to US market could be theoretically higher, but again bear in mind that manufacturing noted growth this year. End of proof for Scenario 1.

Scenario 2. Walmart and other big shots. They have important bargaining power, so they could have lower, much lower prices, even at the level of variable costs of some entities. Here their share in net profit of manufacturers is could be lower than their share of sales, because Walmart is the place to be. Again many Chinese producers are out of business but in total they grew this year.

To sum up, because the decrease of Chinese exports to US is gradual, at a very low pace this is some head ache but not the matter of survival for Chinese manufacturing.

The low pace of decrease in view of high % of tariffs is actually astonishing to me. It shows it is really difficult to change sourcing out of China. I expected 15-20% decrease in Chinese exports to US in yuan terms this year, and we got what 7-8% as per Chinese Customs Office for 11 months of 2019.

Trump was wise that he backtracked (not for the first time) from imposing tariffs on December 15, he would loose the last guns in the war with China. Chinese KNEW this, perfectly knew this that Trump cannot impose them, it was apparent in Chinese authorities retoric, they never say anything without meaning. It is apparent in this NO DEAL, DEAL they offered to Trump, worth less than the paper it would be, WOULD BE ? signed on.

China is very good for Trump and for US, so as to keep costs of hegemony conflict low. For 2018 and 2019 it is about 0.5% of Chinese GDP so manageable. My prediction for 2020 is that Trump would boast this phase one deal. China is not going to interfere in any way in US elections, noticed this or not there is even ban in official media to talk or report about US elections until election night and short info that Xi Jinping sent letter of congratulation to Trump or Biden.

But it will not be signed by Xi Jinping as he is not going to sign anything with Trump, Xi is a real guy, Chinese Emperor with Mandate of Heaven and Trump plays clown too much, too often, although it is his role of Tribune of the People. It is not personal but  a matter of the most important of audiences, domestic audience. Xi Jinping is trying to evade Trump, Trump wants to find venue to meet Xi in Davos or elsewhere. If Trump will wait till end of June he can meet Xi in Japan. Liu He or at best one of 7 Standing Committee bosses but not Xi or Li Keqiang will sign it. And from US side I think Ross and Mnuchin maybe Pompeo but deifnitely not Mike Pence will be present at the ceremony. And China will agree to sign it in Washington or even mud of Iowa or some other breadbasket.

I think I will start a blog.